Eli and Kate's Bitcoin Adventure

Eli Nemzer is a senior from Alameda, California studying communications, business and sociology. At Northwestern he has studied both Spanish and Portuguese, taken classes on human rights and politics in Latin America, and completed a research project on Social Media’s role in facilitating the 2013 Confederations Cup protests in Brazil. After learning about Argentina’s unique economic situation, his interest in the intersection of new technology and international development gave him the desire to further investigate digital currency’s potential to transform citizen’s economic efficacy. He is a some-times writer and full-time explorer, who has backpacked and biked; wandered and hitchhiked through over 30 countries and 40 states. When back in Evanston, you can find him near the window at Peet’s. Kate Cobb is a senior from Seattle, Washington studying film, business, and political science. She’s been writing and directing films since high school and has worked on film sets at Northwestern. In Paris, she studied currency in an international context at Sciences Po, delving into the issues of the World Bank, law making, and monetary policy — including the issues of adopting an inter-country currency in the 21st century. She is an adventurer, avid photographer and crossword enthusiast.

We’ve held a bunch of meetings over the last few weeks and it’s been difficult to keep up with posting the recaps. One of particular interest was our conversation with Paula Biglieri, a professor of Political Science at the Universidad de Buenos Aires. We met Paula through out faculty advisor, Professor Dilip Gaonkar, who had worked with her when she did research at Northwestern a few years back.

We convened at a quaint corner Porteño cafe in our neighborhood to discuss Kirchnerismo — the political ideology of current Argentine President Cristina Kirchner and that of her late husband Nestor, the nation’s former head of state. Aside from the economic issues we have been researching, at the time of our meeting with Paula, Kirchner was also under international fire over her potential role in the mysterious death of prosecutor Alberto Nisman, a spy-like saga that has transfixed Argentina for most of the past month and remains unsolved.

Though Paula had told us she knew very little about Bitcoin, we wanted to chat in order to gain a better perspective of the country’s general sociopolitical atmosphere. Argentine Bitcoin enthusiasts have proven to lean libertarian in their political views, so we were hoping to hear the argument from the other side of the political spectrum.

In stark contrast from the rhetoric we’ve been hearing in discussions with Bitcoin enthusiasts that “the country is falling apart” and “this fall’s elections will drastically shape the future”, Paula offered a much more reassuring and calm view.

In fact, she actually described Argentina’s political ecosystem in terms that sound incredibly similar to that of the United States. There exist underlying racial and immigration issues and even deeper-woven class issues. Too much of the media is controlled by too few people. The government is divided and therefore inefficient. The global debate between economic protectionism and free trade wages… Sound familiar?

And while Paula was critical of the Kirchner regime’s handling of the economy, she wanted to make it clear just devastating the situation was when Nestor took over following the crisis of 2001. She also offered us a positive window into some of the very successful social programs Cristina has implemented. She’s completely revamped social programs — providing computers to low-income students and subsidies to parents who vaccinate and send their children to school — reducing extreme poverty by 4%. Likewise she has made incredible strides for the LGBTQ community — in addition to legalizing same-sex marriage nationwide, she also passed a bill that allows transgender individuals to receive free hormone therapy in both private and public hospitals, the first of its kind in the western hemisphere.

Paula’s outlook on the Nisman case, which was blaring on the television behind us at the cafe where we met, was similarly unperturbed. She felt that though the case was of course tragic, it was being overblown by the media.

Kate and I both found it interesting to hear the political landscape defined in these familiar terms. If this is truly the case, Argentine citizens political engagement is even more surprising and impressive. Perhaps it is due to the fact that voting is mandatory, but we have noticed that people here, particularly younger generations, are much more likely to openly discuss politics than in the United States.

In our follow-up discussions, both Kate and I agreed that from the all of our pre-trip research about the dysfunctional economy and seemingly inefficient policies in place to solve it, we had come to Argentina somewhat biased against Kirchner’s government. Hearing Paula’s take was a great way to counter these biases and evaluate the Bitcoin movement within the greater context of national politics.

On Tuesday we experienced one of the quintessential things that happens to all foreigners living in Argentina: We ran out of US dollars. If you’ve read any of our previous posts, you should be well aware that this is a problem. When you don’t have dollars to exchange through informal channels, living in Buenos Aires quickly gets quite expensive. However, there exists a reasonably easy remedy to this dilemma—a ferry ride across the Rio de la Plata to neighboring Uruguay.

The city of Colonia del Sacramento makes for a lovely day trip, complete with colorful cobblestone streets, tranquil cafes and ice cream shops, a historic lighthouse and a plethora of ATM machines dispensing crisp US dollars.

It can be difficult for Argentines to obtain a Uruguayan bank account, however they often use credit cards to take out cash advances in US dollars. We had heard stories of the ATM’s actually running out of cash over the course of the day, so we beelined straight to a recommended bank after getting off the ferry. We were unsurprised to find a sizable line outside the bank. Luckily, we were able to withdraw cash (we later learned that they usually only run out on the weekends), but not before waiting for a few individuals to use many different bank cards at the machine, which limits withdrawals to $300 per account. One woman ahead of us in line spent a while at the machine withdrawing money, and then noticing how long the line had gotten, actually returned to the end of the line as a courtesy because she still had more cards to use. What a strange phenomenon!

On Thursday, Eli and I went to the first official Bitcoin meetup at the year, hosted by Espacio Bitcoin. We weren’t really sure what to expect, but were excited to be in a bigger group of Bitcoin users and learn more about some of the startups in the space.

We arrived at 6pm, and in typical Argentine style the hosts hadn’t yet set up for the meetup. More guests arrived and mingled upstairs while the Espacio Bitcoiners, unhurried by the onslaught of guests, continued to set up. Once we were all seated in the room it became strikingly noticeable that of the 40 or so people in attendance, only three were women.

Ariel Aguilar, the “Evangelista Bitcoin” who we met last week, greeted us and explained that he was going to give the same introductory presentation as last week, and gave Eli and I a beer for sitting through it again. Hearing the presentation again cleared up some of the language barrier issues for me, and it was clear from the audience’s reception that many people in the crowd knew less about Bitcoin than we initially thought. The next presenter spoke about Bitcoin’s specific role in the financial market and the amount of worldwide investment in cryptocurriences over the last year. Despite showing a chart that displayed the major price drop in 2014, he remained optimistic and projected that 2015 would bring a huge rise in the amount of merchants accepting the currency. Some of the audience was clearly lost at this point, and the presenter just sort of stopped midway through to answer questions as side chatter filled the room.

Ariel explaining Bitcoin

The final presenter was Ramiro Gamen, representing Factom, one of the startups in the space. One of the most interesting and significant aspects of Bitcoin is its underlying technology — the “Blockchain” (where transactions take place) makes it impossible for users to falsify data or personal information. The blockchain acts as a permanent public record, making reading that information extremely useful to companies and governments. Factom is a company that reads the blockchain and sorts the data based on user and transaction type, essentially packaging together information to then be sold. In essence, a cryptographic data mining company. While we were able to keep up with most of what Mr. Gamen was saying despite the language barrier, it seemed that much of the audience was completely lost. Although Gamen spoke about Blockchain in fairly simple terms, the audience could not wrap their heads around the technology, or its use. After a somewhat unclear analogy about publicizing land titles via the Blockchain, the presentation devolved into an argument between an audience member and Gamen over the ethicality of land titles being publicized.

Overall, we were disappointed in the event’s lack of organization — however, we felt like we definitely got a better understanding of the Argentine bitcoin user. From our observation it seems that aside from the small group of Bitcoin experts who are running companies and heavily involved with the foundation, the more casual user is mostly interested in learning how Bitcoin can help them avoid sending money through Western Union to their family abroad, or as a way to skirt the Blue Dolar market. We’ll be posting soon outlining just how this is possible.

As the price of Bitcoin plummeted for the third consecutive day, we headed to a lecture at the Mecca of digital currency in South America: Espacio Bitcoin

After a first week of exploring, sightseeing, and generally getting the lay of the land in Buenos Aires, we have begun to dig into the meat of our project. Thanks to a very cool group called Mundo Lingo, which hosts language exchange events at local bars three nights a week, we have been able to meet a random sample of Argentines, discuss our project with them and get a sense of their knowledge and opinion of Bitcoin. During the afternoons we have been conducting interviews at various local businesses that accept the currency (more on these findings in a separate post). and yesterday evening we walked over to Espacio Bitcoin for their first event of the new year, a “charla introductaria + experiencia” (introductory chat) hosted by one of the leaders of the Bitcoin Argentina foundation, Ariel Aguilar.

Meanwhile, notoriously volatile bitcoin has tanked in price this week, losing an astounding 38% of its value since Sunday morning! The price had fallen from $279 USD per bitcoin over the weekend to $173 per bitcoin at the time of the lecture (it has since risen back above $200). Needless to say, it was an interesting climate to observe a sales pitch of the currency.

Espacio Bitcoin is located in the city’s “Microcentro” district, just a few blocks away from Calle Florida, where hundreds of Arbolitos meander the streets offering “cambios” day and night in a constant reminder of the nation’s uniquely broken economy. For being the largest digital currency center on the continent, it appears rather nondescript; a grey door sandwiched between a dive bar and a pirate-themed restaurant. Upstairs, however, it is home to the foundation, as well as a variety of other Bitcoin-related startups: the Latin American headquarters of US-based digital currency e-commerce platform Bitpay, Argentina’s own version BitPagos, BTC exchange site Coinmelon, a few software companies and a co-working space that can be rented out for the day.

The dive bar and the pirate-themed restaurant on either side of Espacio Bitcoin both accept Bitcoin.

We were the first to arrive on Wednesday, and as the clock inched towards seven we began to worry that perhaps we would be the only ones in attendance. But that was a naive thought in Argentina, where the “mañana” attitude thrives and things rarely run on schedule. Sure enough, a small audience began to file in and the lecture began about 15 minutes behind schedule.

Aguilar, an enthusiastic man of about 30 who owns an online photo company and hands out business cards under the name “Evangelista Bitcoin”, pitched digital currency’s potential to the crowd. His presentation included a brief economic history of Argentina, video clips displaying worthlessly inflated currency in Zimbabwe, and a local comedian screaming rapidly in Spanish something to the effect of the peso being so worthless he could burn it to start a fire to cook his steak (this was a tough clip to interpret…).

This was in introductory talk, and the rest of the audience admitted to only minimal prior knowledge of Bitcoin, so Aguilar spent most of his time explaining the currency’s functionality as a means of exchange, rather than in investment opportunity. He stressed the idea that digital currency will someday revolutionize the way people donate money and “tip” online. He imagines a world where if you read a piece of writing you really like, or watch a cool youtube video, you would be able to immediately and effortlessly tip the content provider in Bitcoin. He avoided mentioning the recent implosion of the price.

After the session, we were given 500 bits (US 9 cents) worth of Bitcoin as a thank you for attending.

During the subsequent question and answer session, some of the other audience members raised concerns about the lack of “impuestos”–taxes–on BTC, particularly any type of capital gains tax. In response, Aguilar mentioned that the Argentine version of the SEC had ruled that car dealerships and real estate agents would have to report anything they sold in Bitcoin, but that smaller purchases remain unregulated.

When finally prodded about the recent drop in value, he made a very interesting argument about inequality within the Bitcoin world. Apparently, a select few people currently control a large share of the market, and a drop in value should theoretically encourage these entities to sell their BTC, opening up the market to many new users. For some who see the currency as just that–a currency–rather than a speculation tool, it seems the drop in price is welcomed.

Despite the sparse attendance of this particular lecture, Bitcoin Argentina estimates that close to 10,000 people are using the currency in the country. We will hopefully meet more of them next Thursday at the foundation’s first monthly meet up of 2015!

In order to understand why Bitcoin might be of particular interest to Argentine citizens, it is first necessary to gain a general understanding of the current economic climate here. Argentina was once a world economic powerhouse, but over the past century, the nation has experienced numerous crises due to a variety of factors including political instability, foreign involvement, and globalization. Following the major crisis of 2001, major restrictions were placed on imports in an attempt to bolster the domestic economy and it has been difficult for Argentines to purchase foreign goods ever since. A decade later, in October of 2011, current President Kirschner took this a step further by placing a limit on the amount of US dollars Argentines could take out of their bank accounts. This move, which pegged the peso to the US dollar at an artificial rate of 8.5/1 has created an enormous black market for US dollars in the country.

Argentine citizens have historically always preferred to save in dollars in order to counter the rampant inflation inflicted upon the peso. For those of you without a background in economics (and because you never have to worry about this in the US!), this basically means that Argentines are always concerned about the value of their paycheck/savings account decreasing in value over time. Our research deals with digital currency adoption as a mechanism to circumvent this convoluted system of acquiring dollars. But more on that later…

As a traveler from the US or Europe in Argentina, you are at a huge advantage if you bring dollars or euros with you. That’s because Argentines want dollars, and by astutely navigating the informal market it is possible to dramatically lower your costs while in the country. As of today, January 9, the official rate–what you get from an ATM or what you get when you make a credit card charge–is 8.5 pesos/1 USD. The medium rate–what you get from a seemingly more legitimate “officina de cambio”–is around 12/1, and the Blue Rate–which you get from the arbolitos on the street of if you know about a “cueva”–is about 13.5/1.

This is a huge difference! Buenos Aires goes from being about as expensive as a mid-level European city (think Madrid or Rome) at the official exchange rate to probably cheaper than Lima, Peru or San Jose, Costa Rica at the Blue Rate.

For Example…

A beer or a cup of coffee in the city is typically about 30 pesos, which at the official rate costs $3.53 usd, but at the Blue rate is only $2.22 usd.

Now take something more expensive, like dinner for two with wine at a nice “Parilla” (steakhouse). It might run you about $450 pesos in our neighborhood. That’s $53 usd at the official rate but only $33 usd at the Blue Rate. You just saved yourself $20!

Into the Lair…

Upon arrival last week, Kate and I obviously needed some pesos to buy food and whatnot, and didn’t want to use the ATMs, so we exchanged at an “oficina”. One day we were offered 12 pesos per dollar and another we were offered 12.2. A few days into our stay we befriended some people who knew of a trusted “cueva” nearby, where they had gotten a 13.2 rate. We decided to check it out.

It was located on a quiet residential street in Villa Crespo, a neighborhood directly adjacent to trendy Palermo Soho, where we’re staying. We had the address written down, and when we got close we noticed a security guard meandering around on the sidewalk. Before we even reached the guard, a man sitting on a bucket in a doorway greeted us and ushered us inside. He was very friendly and it was clear that he knew what we were looking for. We entered what seemed like a dilapidated ground-floor office, and were told to go down a hallway to a room in the back. There was a little sign prohibiting cell phone use, so we were unable to snap any pictures. The back room was dimly lit by just two candles; two men sat barely illuminated behind a heavily-tinted old-school bank teller window. They invited us forward and offered us a rate of 13.5 pesos per dollar. We gladly accepted, and received our pesos in rubber-banded stacks of 1,000. Before we could count to make sure the amount was correct, we were ushered back outside.

The experience as a whole was not scary, but it was certainly a bit intimidating. However, back out on the street and around the corner we counted our pesos and the number was exactly correct. As unusual or sketchy as this experience seems, it is merely a facet of day-to-day life for many citizens here.

Argentina’s Underground Economy: Terms to Know :

Arbolito: Translates to “little trees” but refers to men and women on the street who are in the currency exchange business.

Calle Florida: Major pedestrian thoroughfare in the center of Buenos Aires where Arbolitos are known to do their business.

Cambio: Means “exchange”. As a fair-skinned, backpack-wearing person in Buenos Aires, you get constant offers to “cambio dinero”.

Cuevas: Translates to “lairs” or “caves” but in reality they are more like informal exchange houses.

Dolar Blue: They don’t use the phrase “black market” or “mercado negro” to refer to the underground exchange, instead it is called the “blue” rate.

Oficina de Cambio: These exchange offices seem to operate on the border between the legal and informal exchange. They are housed in official storefronts, and offer an exchange rate in between that of the Blue rate and the official rate.

Precio/Tasa: Both mean “rate”. When you go to exchange money, you ask them “Que precio tiene aca hoy?” or “What’s the rate (of exchange) here today?”

Uruguay: It is perfectly legal to take US dollars out of ATM machines in Uruguay, which is an hour boat ride away from Buenos Aires. Many expats and others with foreign bank accounts take the boat to Uruguay, take out US dollars there, and then return to Buenos Aires to exchange at the Blue Rate

Welcome to our Blog–we’re excited to share our project with all of you for the next few months.

First, a quick recap of how we got here. About a week into last year’s “Polar Vortex”, Kate and Eli had both decided that their third winter in Chicago would be their last. We had some extra credits to play with and wanted to the southern hemisphere, but had already done the aimless backpacking thing so wanted to get involved with a more immersive, long-term project.

Developing a research project was a long process. We went from “Let’s go study gentrification of favelas in Brazil!” to “nah, too dangerous, don’t know portuguese, screw research, let’s just go biking in Thailand” to “nah, but research would be really cool, what about that whole black market for US dollars thing going on in Argentina” to “damn that would be cool but people involved with the black market probably aren’t going to want to talk to us”. At this point, we were admittedly a bit lost.

And then we came across an article on Bitcoin’s potential for Argentina.

Quick primer on Bitcoin–if you don’t know much, no problem, neither did we a few months ago–the digital currency launched mysteriously in the wake of 2008’s global financial crisis as a peer-to-peer electronic payment system that is backed by computer software rather than governmental authority. The open-source software’s cryptographic design principles allow it to avoid centralizations of power that could let a single person or organization take control.

This all sounds cool, but if you’re like most Americans, you probably don’t worry about the value of your currency decreasing or the government taking control of your bank account. You have no reason to. In fact, it is fairly easy to break down the early American adopters of Bitcoin into four general groups:

Super techy folks who are fascinated by the software

Speculators using Bitcoin as an investment (the price of 1 BTC skyrocketed to over $1,000 USD late last year before falling back to around $350 where it stands today)

Wacky libertarians who areafraid of the government

People looking to buy drugs online

Bitcoin proponents always point to places like Zimbabwe, where inflation was recently 231,000,000% (not kidding, google it), as locales that would obviously benefit from freeing citizens from the government through a peer-to-peer currency system. The problem with this is that most citizens of Zimbabwe do not have computers, let alone the advanced technological knowledge needed to adopt Bitcoin.

This is where Argentina comes in. We see Argentina as an ideal test tube for large-scale Bitcoin adoption due to a few unique factors: in many ways Argentina is a first-world country–Buenos Aires is known as “The Paris of the South”, technology penetration is strong (with far and away the most internet users in South America according to PEW research) and education levels high–however, the nation has suffered through a century of economic instability and prolonged crises

In short, Argentina may be one of the few places in the world currently with both the need for Bitcoin and the capacity to adopt it at a large scale. That’s the essence of what we’re researching. We’ll be integrating ourselves into the Bitcoin community in Buenos Aires and discovering who the early-adopters really are, asking them about their goals and motivations, and evaluating the current success and future potential of the movement.

We’re dealing with some pretty big stuff here–dissecting complex new technology, assessing the strength of global financial systems, uncovering the economic and political psyche of an entire nation, etc. It’s a tall task undoubtedly, but we’re thrilled to have been given the opportunity to take it on.

Like everyone at Northwestern, in Evanston we’re sometimes overwhelmingly busy. Four classes, extracurriculars, job hunting and social lives can make it challenging to really ever focus one hundred percent on anything. That’s why we’re incredibly excited to become fully immersed in this project and unique community over the next few months. Stay tuned here for updates on our progress!

Disclaimer

The views expressed in this blog are solely those of the author and not those of Northwestern University or any of its trustees, officers, agents, or employees. The author is solely responsible for the content of this blog, and Northwestern University does not review, edit, or endorse any of the information contained herein. If you have questions or comments about this blog, please contact its author directly.